Contact the Rural Team
Exeter Office
Susie Murray 01392 210700
St Austell Office
Scott Mitchell 01726 74433
Truro Office
Richard Baker 01872 265100
Agricultural tenancies which were created prior to 1 September 1995 are governed by the Agricultural Holdings Act 1986 ('the 1986 Act') and are known as Agricultural Holdings Act tenancies ('AHA tenancy'). Generally all tenancies created on or after 1 September 1995 are governed by the Agricultural Tenancies Act 1995 ('the 1995 Act') which act creates Farm Business Tenancies ('FBT'). The general rule therefore is that tenancies created on or after 1 September 1995 will be FBT's and cannot be AHA tenancies.
The distinction between the two types of tenancies for the purpose of agricultural property relief ('APR') is that in the case of an AHA tenancy relief at only 50% is available whereas 100% relief is potentially available under an FBT. It follows that for a landlord an FBT is far more attractive from a tax saving point of view than an AHA tenancy, although there is no particular tax advantage for the tenant. On the other hand a tenant under an AHA Act tenancy has a level of security of tenure which is not enjoyed under an FBT. In normal circumstances therefore a tenant under an AHA tenancy would not wish to enter into an FBT (post 1 September 1995) in order to give his landlord the potential to claim an increased level of APR.
There are however important exceptions to the rule that all post 1 September 1995 tenancies must be FBT's and these are to be found in the sub-sections 1(a) - (g) of section 4 of the 1995 Act as amended by the Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006.
Section 4 (1)(f) of the 1995 Act provides that if the parties to an AHA tenancy enter into an agreement having the effect of an implied surrender and re-grant (e.g. by the inclusion of additional land in an existing AHA tenancy) the new tenancy although created after 1 September 1995 will nevertheless remain an AHA tenancy.
Section 4 (1)(g) provides that where a new tenancy is granted to a person who immediately before the grant of that tenancy was an AHA tenancy of whole or a substantial part of the holding and the new tenancy states that the 1986 Act is to apply to the new tenancy, then the new tenancy will be an AHA tenancy.
It can be seen therefore that it is possible in certain circumstances for a landlord to obtain the benefit of the potential to claim 100% APR in place of 50%, and at the same time for the tenant not to lose the security of tenure and the other advantages secured under an AHA tenancy.
As always it is important for the parties to take professional advice before contemplating entering into any new arrangements to ensure that the detailed requirements of the statutory provisions are satisfied and in particular that the new arrangements are not tainted with artificiality. Other taxation implications will also need to be considered before making any changes to existing tenancy arrangements.
Susie Murray is a solicitor with Stephens Scown's dedicated Rural Services Team in Exeter. She specialises in all aspects of agricultural property work including farm sale and purchases, partnership agreements, tenancies, single payment scheme entitlements and bank security work.
If you have any queries relating to this or any other rural issue please do get in touch.
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